Newbie

[TruthTeller]

Quote from nirav34:

Algorithm, I have no clue why I picked that, mostly speculation.

You've asked a number of questions here. But you aren't listening to the advice.

I'm going to save you a lot of trouble and losses by telling you once more that until and unless you are very confident you have a winning STOCK trading strategy, and until you are consistently profitable in that, you should not be considering options as part of a strategy. They will only accelerate your losses, and you will not find some secret options strategy that nobody else has uncovered. Your time and your studies are much better spent in learning how to trade underlying stocks first, because any success in options - which is difficult under any circumstances for the average trader - will only come with correct movement of the underyling stocks. That alone is a huge challenge for you, without adding the extra burden and hurdles of options trading.

There are excellent reasons why your broker restricts options trading in certain accounts. It is to protect you from yourself.

Listen, or perish.

 

[loufah]

This presentation is pretty useful for beginners. Note the part where he talks about how the underlying stock can move in your desired direction yet the price of the options can still go down.

http://www.interactivebrokers.com/en/general/education/webinars/oic-nov-2005.html

Volatility and Its Importance To Option Traders

 

[Bitstream]

Quote from Algorithm:

[...]



Don't worry, OTM options are usually always the first mistake all new options buyers make.


Now go get that book!

uh??
what's wrong with otm options?
I trade them on a regular basis and are the vehicle of my choice.
are u suggesting atm's/itm's carry less risk magnitude?
if something, on simple strategies, it's exactly the opposite.

 

[coolweb]

nirav,

What you must understand is

Trading options = leverage.

Thats all,

You don't need to trade options now, All you will be doing is giving the MM your commissions and spreads. All that beta/gamma/volatility calculation is for the MM to make money off of YOU for using his funds/leverage.


What you need to do is trade the STOCK

maybe 10 shares, trade it until profitable,

Then when you need leverage, you use OPTIONS.


OPTIONS = 7-10x leverage

Thats all there is to it. When starting out you do not need any leverage unless you want to exponentiate your losses.

 

[Algorithm]

Quote from Bitstream:

uh??
what's wrong with otm options?
I trade them on a regular basis and are the vehicle of my choice.
are u suggesting atm's/itm's carry less risk magnitude?
if something, on simple strategies, it's exactly the opposite.

I am in no way implying that OTM option purchases are intrinsically a mistake. However, I am asserting that most people new to options make the mistake of purchasing OTM options due to the fact that they are "cheaper". If you follow the OP's current position he/she even admits that it is pure speculation without really any reasoning. Now, I am not here saying that the OP made a mistake in OTM options and will lose with that position. I am here saying that purchasing OTM options without any reason is a mistake. Hence the saying, "cheap options are often some of the most expensive options". This, of course, is due to the multiple greek factors at play which I am sure you take into account when you purchase your OTM options.

So, trading/speculating in OTM options isn't NECESSARILY a bad thing, but for new options traders it is OFTEN the mistake they make because they feel an upward bias of the underlying and want to "place a bet" on that bias by purchasing a "cheap" option. Too often they do realize that they may have purchased an expensive "cheap" option, or don't realize why their option fails to gain value even though the underlying has appreciated. That's all I'm saying. So my initial advice to the OP stands, go purchase a book on options and learn in order to earn.

That's all. Bitstream, keep trading your OTM options and continue making money on them. Nothing wrong with playing OTM options as long as you know why you are doing so and how to do so.

 

[Buy1Sell2]

Quote from coolweb:

nirav,

What you must understand is

Trading options = leverage.

Thats all,

You don't need to trade options now, All you will be doing is giving the MM your commissions and spreads. All that beta/gamma/volatility calculation is for the MM to make money off of YOU for using his funds/leverage.


What you need to do is trade the STOCK

maybe 10 shares, trade it until profitable,

Then when you need leverage, you use OPTIONS.


OPTIONS = 7-10x leverage

Thats all there is to it. When starting out you do not need any leverage unless you want to exponentiate your losses.

good advice

 

[murray t turtle]

Quote from Algorithm:

I am in no way implying that OTM option purchases are intrinsically a mistake. However, I am asserting that most people new to options make the mistake of purchasing OTM options due to the fact that they are "cheaper". If you follow the OP's current position he/she even admits that it is pure speculation without really any reasoning. Now, I am not here saying that the OP made a mistake in OTM options and will lose with that position. I am here saying that purchasing OTM options without any reason is a mistake. Hence the saying, "cheap options are often some of the most expensive options". This, of course, is due to the multiple greek factors at play which I am sure you take into account when you purchase your OTM options.

So, trading/speculating in OTM options isn't NECESSARILY a bad thing, but for new options traders it is OFTEN the mistake they make because they feel an upward bias of the underlying and want to "place a bet" on that bias by purchasing a "cheap" option. Too often they do realize that they may have purchased an expensive "cheap" option, or don't realize why their option fails to gain value even though the underlying has appreciated. That's all I'm saying. So my initial advice to the OP stands, go purchase a book on options and learn in order to earn.

That's all. Bitstream, keep trading your OTM options and continue making money on them. Nothing wrong with playing OTM options as long as you know why you are doing so and how to do so.

==========

OTM =much more leverage than ITM or underlying stock;
High leverage is NOT a new traders friend.

Wisdom is profitable to direct.

The trend can be a friend;
leverage is not a new traders friend.

 

[nirav34]

I was reading this weekend and had a question as it didn't mention this. Let's say if I buy to open and than sell to close, am I done with that option contract and just take the profit, or is there anything else that buyer can do? Really appreciate your help. I started reading the book McMillan On Options, it's really good! Thanks for recommending it.

 

[Bitstream]

Quote from murray t turtle:

==========

OTM =much more leverage than ITM or underlying stock;
High leverage is NOT a new traders friend.

Wisdom is profitable to direct.

The trend can be a friend;
leverage is not a new traders friend.

I was obviously comparing the r/r on 1:1 contract basis.
As a rule of thumb OTM ( back months) drop less when common fall and rise faster as common levitate towards the strike.
Also gamma/delta risk is much higher on atm/itm.

 

[AmbushHillbilly]

Buy to open and then sell to close - you are out. Count your money.

Quote from nirav34:

I was reading this weekend and had a question as it didn't mention this. Let's say if I buy to open and than sell to close, am I done with that option contract and just take the profit, or is there anything else that buyer can do? Really appreciate your help. I started reading the book McMillan On Options, it's really good! Thanks for recommending it.